The Downward Gap Beckons

The opening gap up due to a bailout of Spanish banks was quickly sold, and the atmosphere grew increasingly negative as a couple of earnings warnings rolled in. Applied Materials (AMAT) warned early in the day, and that helped to pressure the technology sector, but it was a warning from Cummins (CMI) at around mid-day that really cranked up the selling. Cummins is in one of those basic industries, and if it isn't doing well, then that probably means a lot of others aren't doing well.

While the straight-down action all day was quite ugly, many individual stocks were absolute disasters. The drops in stocks such as Questcor (QCOR) and MAKO Surgical (MAKO) were news-driven, but the reversals in Apple (AAPL) and Priceline (PCLN) weren't very pretty either.

Many technicians were looking for a pullback to test the 50-day simple moving average of the S&P 500 around 1340, and that is exactly what we did today. The question now is, do we hold or do we crack further and fill the gap down to 1329, which was created on June 28 by the European summit news? The bears gained some momentum today, so we need to give them more respect and not be too optimistic that we can hold the 50-day.

What makes things particularly difficult is that we are in a news vacuum right now while we await earnings reports and Ben Bernanke next week. Market players are obviously nervous about reporting season, but it is also tough for the bears to be too comfortable when Ben Bernanke is looming.

I'm not at all confident that this selling is over, so I'm heavily in cash and staying patient. There just aren't many reasons to buy right now.

Have a good evening. I'll see you tomorrow.

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